LBBW launched the largest Eurodollar covered bond since May 2015 today (Tuesday), a $750m three year Pfandbrief that attracted around $1.1bn of orders. In euros, Crédit Agricole Home Loan SFH this afternoon mandated a long eight and/or 15 year benchmark.

The German bank’s deal is the first Eurodollar benchmark covered bond since August, when Deutsche Pfandbriefbank (pbb) issued a $500m August 2019 Pfandbrief that it tapped by $100m last Tuesday at a spread of 55bp over mid-swaps. The new issues is the largest US dollar Reg S covered bond benchmark since May 2015, when Swedbank Hypotek sold a $1bn five year.

After announcing a mandate yesterday (Monday) afternoon, Landesbank Baden-Württemberg leads Citi, Credit Suisse, LBBW and RBC launched the Reg S public sector Pfandbrief at 8:45 CET this morning with initial price thoughts of the 52bp over mid-swaps area. At 9:00, the leads announced that orders exceeded $600m.

At 11:20, guidance was revised to 50bp plus or minus 3bp will price within range, with orders in excess of $1bn for an expected deal size of $750m (Eu699m). The book went subject at 12:00 at around $1.1bn, pre-reconciliation, with the spread set at 47bp and the size at $750m.

“It’s been a tremendous process,” said a syndicate banker at one of the leads. “Dollar covered bonds can often be tricky, especially for Reg S bearers, but this went very well – reflecting that LBBW are now a more established issuer in the market.

“For the second year in a row, they have opened the Eurodollar segment with the first new benchmark.”

The new issue is LBBW’s third Eurodollar covered bond in three years, the German bank having issued a $500m March 2013 issue in February 2012 and a $650m May 2019 issue last May.

The lead syndicate banker said the issuer and the lead group had been confident to go ahead with the trade after observing that the markets were largely unaffected by the inauguration of Donald Trump on Friday.

“Of course that was something that we looked into, but we have been following the dollar market for some time and saw that recent dollar supply has all traded well, especially that from German SSAs,” he said. “We had a good feeling.”

Although the US dollar weakened slightly following the first full trading day of President Trump’s term yesterday (Monday), bankers noted that the primary market showed no signs of ill effects as $9bn was issued across the corporate and financial markets yesterday, adding to record levels of January supply. Today, Credit Suisse was also in the dollar market with a Reg S AT1 issue.

Bankers said LBBW’s deal, at 47bp over, offered a new issue premium of 5bp-7bp, citing LBBW May 2019s at 32bp, mid, and Helaba August 2020s at 42bp. They also saw 2019 dollar-denominated paper from fellow German issuers NordLB, Aareal, MünchenerHyp and BayernLB quoted between 31bp and 37bp.

“The year’s previous dollar trades, the two Canadians, were priced pretty much flat to fair value,” said a banker, “but for a German name, this premium is fair.”

LBBW’s euro-denominated July 2020s were seen at minus 14bp, mid, which bankers estimated to be to be equivalent to a US dollar spread of around 43bp.

The lead syndicate banker said that the deal was priced almost flat to where an equivalent euro issue would come. He estimated that a new three year euro trade for LBBW would be priced at minus 10bp-8bp – accounting for the fact that LBBW would likely have to offer a more substantial new issue premium as a three year would be priced with a substantially negative yield – and said this was equivalent to a dollar spread in the mid-40s.

“At most, they paid a pick up of around 2bp versus euros,” he said.

A banker away from the deal added that LBBW would likely struggle to issue a three year euro benchmark, given that such a deal would be priced deeply in negative territory.

“We’ve seen that negative yielding deals can be done, of course, but it’d take a brave German issuer to try and market a euro three year,” he said.

LBBW’s new issue is the third dollar benchmark covered bond this year, following $1.75bn five year issues for Bank of Montreal and Toronto-Dominion on 11 and 18 January, respectively.

There was meanwhile no euro benchmark covered bond issuance today, but this afternoon Crédit Agricole Home Loan SFH mandated an eight and/or 15 year benchmark, with launch expected tomorrow (Wednesday). Crédit Agricole, Commerzbank, Helaba, LBBW, NordLB, Santander and SG are leads.

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